Home Equity Loan for Senior?

[kellia]

Dh's grandma owns her home, has for decades! She needs some money, though and wants me to look into her getting a home equity loan. She is in her 70s, her son lives with her and they share expenses/income jointly, but he has horrible credit and is bad with money, which is why she asked me to do it. She is fully competent to understand finances, but is originally from Poland and her English isn't as good as it used to be so doesn't want to try to call herself.

What exactly should I look for her? Since she doesn't have a mortgage, should I look for a home equity or a mortgage? Don't home equity loans have higher interest rates? Will they loan money to seniors? She does have a pension and social security, but it isn't a lot.

Thanks for any advice!

 

[CarolA]

You should look into a Reverse Mortgage

With a Reverse Mortgage she would not have to pay the Mortgage back. It would be dealt with upon her death or disablity that required her to leave the home.

From www.aarp.org

http://www.aarp.org/money/revmort/revmort_basics/a2003-03-21-revmortfactsheet.html

 

[kellia]

You should look into a Reverse Mortgage

With a Reverse Mortgage she would not have to pay the Mortgage back. It would be dealt with upon her death or disablity that required her to leave the home.

From www.aarp.org

http://www.aarp.org/money/revmort/revmort_basics/a2003-03-21-revmortfactsheet.html

Thank you! That wouldn't work if the house won't be sold upon her death, would it? Her son will continue to live there after she dies.

 

[ducklite]

A home equity loan generally has a higher interest rate but no closing costs. How much is she looking to borrow, and for how long?

They will loan to seniors, it's illegal to discrimate due to age. I wrote a $350,000 mortgage for a 74 year old woman once.

I've got some serious concerns though. If she dies, her estate needs to be settled, including paying all debts. That could fore the sale of the house.

Either way she will need to be able to qualify for the loan on her own, they will not use the sons income unless he will be on the mortgage, and if his credit is bad they will reject the loan except as a high interest sub-prime.

Anne

 

[dtauer]

Warning! Be VERY careful with both of these products when dealing with seniors and those on fixed incomes.

In order to not irritate those who may be in the home equity or reverse mortgage industries I will not go into the economics of these transactions, but you must be very careful.

If the son is poor with money now, what will he do with more money from the reverse mortgage or home equity? I would hate to see Grandma get the money from one of these products, the son spends it all, and suddenly Grandma still doesn't have any money and she has reverse mortgaged away her house as well.

 

[kellia]

The money isn't for the son, it is for her medical bills and some home repairs. He has bad credit, but has lived there for 15 years, takes care of her and the home, he isn't a free loader, after he got divorced it was just better for both of them for him to move in there.

Darn, didn't think of what happens if she dies and the loan is on the house when she asked me to look into this. Her son inherits everything (as he should) and he is my FIL and I certainly don't want to see him losing the house because he sure isn't moving in here! LOL!

So, anyone know the best way to handle this?

 

[dtauer]

Thanks, your clarification helps explain the situation better.

I'm sorry, I didn't intend to make your father in law sound bad, I just didn't have all of the information.

If there is a home equity loan upon death, the debt does not disappear. It is deducted from the value of the estate. So if your father in law was the sole heir he would have the house, but the house comes with the debt. The house could be sold and have the equity used to pay the debt, or he would have to refinance or otherwise pay off the home equity loan to keep the house.

I'm sorry, I don't have a good answer. I just know from experience in my work that combining debt and spreading it over more years rarely fixes anything, it only makes things worse later.

Her best option is to find someone, maybe it's you, that can help her research the options, with her best interest in mind. You're doing the right thing by asking for opinions here, hopefully that will give you the knowledge you need to not be sold something that is not right for her.

 

[kellia]

I'm sorry, I didn't intend to make your father in law sound bad, I just didn't have all of the information.

LOL! Don't worry about that, the man drives me crazy for totally other reasons some times!! (Which is why I never want him homeless! ) I was trying not to make it too complicated but ended up not explaining clearly.

Thank you very much for all of the other information, I never knew or thought about all of what would happen in the long term.

 

[Kay1]

The thing is the loan will need to be paid back and they need to be sure they have the income to do that before they consider the loan. Can't she just make payments on her medical bills? The commercials we all see make it seem like we can extract equity from our homes but that's not really possible - it's just a loan that has to be paid back with interest. If money is that tight, could they sell and move to a less expensive home?

 

[CarolA]

My concern is that if she has limited funds, how is she going to pay BACK the loan?

One option might be to transfer the house to your FIL's name and make HIM get the loan. That way when she dies it's his home. Actually if the plan is for him to stay there, and can be trusted, you should look into this. The problem is that if her health was to get bad and she needed nursing home care and wound up on Medicaid then the goverment can and WILL go after the estate for repayment. (Medicaid was not meant to make sure the heirs get an estate) Your big issue is that there is a 'time line' The transfer has to be done far enough in advance so that the goverment does not believe it was strickley to make the goverment pay for her care.

On a reverse mortgage the home would not have to be sold, FIL could take out a mortgage at that time and pay it off.

On here for some reason reverse mortgages are viewed as "EVIL" If you use a reputable lender they are a very valid way to go for a lot of seniors. IMHO it's not Mom or Dad's job to suffer so that they can leave you an estate. Several times I have seen people bashing reverse mortgages because "then there won't be anything to leave the kids"

 

[Stein]

I believe most people shy away from them because they are loaded with high up-front fees, monthly fees and the bank will benefit from all future appreciation since they own the house. There are actually very few made since most objective advisors suggest against them.

 

[CarolA]

I believe most people shy away from them because they are loaded with high up-front fees, monthly fees and the bank will benefit from all future appreciation since they own the house. There are actually very few made since most objective advisors suggest against them.

Having done a lot of research there are no monthly fees on a reputable reverse mortgage and the upfront fees are no less then on the regular mortgage.

I think most of the folks on here are not "objective advisors",

I went out one time when they were being BASHED on here and read all of the AARP data on them. In the right circumstances they are an excellent choice. And if you don't think it's good for your family member then my suggestion is "start paying" LOL! I have literally seen senior citizens who can't afford to eat, but "we have to keep the house" because JR wants it?? WHAT????

 

[seashoreCM]

There are three fundamental kinds of "loan products"

1. Regular Home Equity Loan (probably not what she wants) A fixed sum of money is borrowed all at once up front and monthly payments of principal and interest are made thereafter.

2. Home Equity Line Of Credit. Money can be borrowed a little at a time and there is usually a minimum onthly payment due which is small at first and after five or so years the ability to borrow is cut off and the monthly payment gets larger so the loan can be paid off over the next five or so years.

3. Reverse Mortgage loan, where money is borrowed a little at a time but no payments are required.

Each of the three would be secured by a mortgage on the property. If there is no older mortgage already on the property, a "second mortgage" one might apply for is really a first mortgage.

The homeowner needs to analyze the interest rates and payment schedules and amount of money that can be obtained given the value of the house.

If a relative is going to cosign #2, that relative would have to make the monthly payments. Why not have the relative be the lender (father in law above) and dole out the money directly to the homeowner (Grandma above). Typically a lower interest rate can be negotiated. Because this will be a first mortgage as opposed to a house sale, the relative will be paid back first when the house is sold, even if the homeowner had to use up all of her assets and go into a nursing home. It is important that the proper paperwork be recorded just as deeds are recorded.

Disney hints: http://members.aol.com/ajaynejr/disney.htm

 

[Stein]

the upfront fees are no less then on the regular mortgage.

The difference is who pays the fees. When you buy a house, the buyer always pays the fees, not the bank. When you take a reverse, despite the roles being reversed, the buyer is again stuck with the fees.

When you buy a home, you may pay mortgage insurance so that the bank is guaranteed to get their payments. When you reverse, you are the one who gets the guarantee of payments, but guess what? You pay for that guarantee, not the bank!

With appraisal fees, origination fees up to 2%, mortgage insurance premiums of 2%, and the normal closing costs, all paid by the "seller" this time, it isn't a wonder why banks are pushing these loans so hard.

If you bought your house with a mortgage from Greatest Bank, then "sold" it through a reverse to Greatest Bank, just imagine how much money they would make.

 

[jayandstacey]

As a general rule, it is worth considering this situation and carrying a mortgage until you die.

For many, this is blasphemous. Isn't it better to own 100%? No debt?

The problem is exactly what happened to the OP here - people end up locking lots of value into a house and then the day they need it is the day they can't get to it anymore, or not without paying a sub-prime price for it.

It is worth it to keep the 20% equity to not pay PMI. But otherwise, I'd rather have the cash in hand, manange that cash and have house payments.

As for keeping the house to hand down - those days are generally gone, largely as people are living to the age where they aer seeing great-grandkids. Grandpa probably doesn't care to pick up another house when Great-Grandpa dies. There are exceptions of course, but generally, this is a sentimental strategy without much real-life use.

 

[crisi]

Here is my concern, and it has little to do with the mortgage....

It sounds like grandma has some medical issues - and she's a senior. The house is in her name.

If she needs a lot of care - which doesn't sound out of the question, they (Medicare) will make her use up her assets - i.e. with the house in her name, your father in law stands a good chance of ending up with nothing - regardless of the mortgage or not.

I think you need to be talking to an estate attorney - though I suspect you are three years to late to do anything about it.

 

[CarolA]

As for keeping the house to hand down - those days are generally gone, largely as people are living to the age where they aer seeing great-grandkids. Grandpa probably doesn't care to pick up another house when Great-Grandpa dies. There are exceptions of course, but generally, this is a sentimental strategy without much real-life use.

Well there's the other side I see a lot in HealthCare. The only family members who ever did anything were Grandma and Grandpa. She owns a house and her free loading kids and grandkids live with her. She winds up on Medicaid and when she dies the goverment sees the estate owns the home and wants it sold for repayment. You should hear the outcry. It's hard to feel sorry for these folks. Medicaid was not meant to provide adult kids with "free lodging"

There was one on the news about a year ago where the son was complaining he was going to be homeless and he ran his "business" out of the house. A few weeks later it came out his "business" was drug dealing. Yeah, we should subsidize that!

 

[mickeyfan2]

The money isn't for the son, it is for her medical bills and some home repairs. He has bad credit, but has lived there for 15 years, takes care of her and the home, he isn't a free loader, after he got divorced it was just better for both of them for him to move in there.

Darn, didn't think of what happens if she dies and the loan is on the house when she asked me to look into this. Her son inherits everything (as he should) and he is my FIL and I certainly don't want to see him losing the house because he sure isn't moving in here! LOL!

So, anyone know the best way to handle this?

Bigger question is how would the son be able to make the payments (if he paid off the loan with another loan) if he has such bad credit now and cannot help her pay for these bills?

It really does sound like he will not be able to afford to live there when his mother passes on.

 

[seashoreCM]

As a general rule, it is worth considering this situation and carrying a mortgage until you die.

For many, this is blasphemous. Isn't it better to own 100%? No debt?

As for keeping the house to hand down - those days are generally gone, largely as people are living to the age where they aer seeing great-grandkids. Grandpa probably doesn't care to pick up another house when Great-Grandpa dies. There are exceptions of course, but generally, this is a sentimental strategy without much real-life use.

If Grandma (or Grandpa or Great Aunt, or whoever) enjoys her/his home, there is no reason why s/he should not stay in it as long as possible and desired.

If there is already a mortgage on the home, even a mortgage taken back by FIL, and then Medicaid puts a lien on the home as SOP when you apply for nursing home assistance, that mortgage loan gets paid first when the home is sold following the homeowner's passing. This is why the proper paper work including recordation is necessary. The rate and terms must be in keeping with what banks offer or a little less although FIL may choose a fixed rate based on the time of inception. Medicaid may freeze an equity line of credit to the then outstanding balance at the time of placing its lien although interest may continue to accrue. In this case this means FIL ceases doling out money.More likely, since the equity in the home is supposed to be used to support the elderly homeowner, Medicaid will insist that the equity loan be used to da max (sic except in Hawaii) before the application for Medicaid assistance is accepted.

If others were living in the home during the time the homeowner was in a nursing home, I don't think Medicaid can collect rent unless and until it makes a demand for rent and then only ongoing rent would be affected.

 

[ducklite]

Here is my concern, and it has little to do with the mortgage....

It sounds like grandma has some medical issues - and she's a senior. The house is in her name.

If she needs a lot of care - which doesn't sound out of the question, they (Medicare) will make her use up her assets - i.e. with the house in her name, your father in law stands a good chance of ending up with nothing - regardless of the mortgage or not.

I think you need to be talking to an estate attorney - though I suspect you are three years to late to do anything about it.

Very, very good advice.

Anne